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31 Jan 2019
You’ve decided that you are going to start your own business – where do you start? Not by talking to Joe Bloggs down the road. A wise idea is to contact an accountant or business adviser, who can help you get on the right track from the beginning. Things he will help you to consider may include:
Entity Type – The 4 main choices are sole trader, partnership, company and LTC (Look Through Company). Consider the nature of the business, involvement of spouse and children and their personal financial situations, and your long term aims when deciding. Different entity types have different legal requirements, documentation and taxation treatments. Do you know whether you need a partnership deed, who can be a company director and what are their responsibilities, or what share capital a company requires?
Business Plan & Funding Requirements. We recommend the preparation of a business plan and cashflow forecast. As a minimum, you need to know the monthly break-even point for the proposed business (i.e. the sales required to cover your expenses). How are you going to fund your working capital (the funds needed to keep your business running until your clients pay), and what are your terms of trade for your customers?
The saying goes “If you fail to plan, you plan to fail”. Have you researched your market, customers and competition? What equipment or premises do you need to get started and how are these to be funded?
GST - The business is required to register for GST once its turnover reaches $60,000 per annum or is likely to do so in the next 12 months. Sometimes it is beneficial to register for GST even though turnover won’t reach the threshold and at other times your profitability and cashflow will be better if you don’t. You may be able to claim GST for assets introduced to the business.
Tax Obligations - It is wise to plan for your tax liabilities, instead of waiting till year end and finding out you have a tax problem. We suggest that funds are set aside in a separate account so, as you earn the profit, you are providing for the tax on it. If your residual income tax exceeds $2500, you may become a provisional tax payer, which means that you may have to pay tax for the year and a provision for the following year within a short period of time. If you don’t use a tax agent who is registered with the IRD, your tax return for a March balance date is due no later than 7 July, and any balance of tax owing is payable by the following 7 February . With a tax agent, filing date extends to the 31 March (i.e. 12 months after balance date) and final tax payment date to 7 April.
Accident Compensation – This is compulsory, however there are decisions to make. What is your industry classification, part-time or full time and should you be registering with ACC immediately or wait until they send the bill once your first year’s tax return is filed?
Employing Staff – This can be a minefield. Things to be aware of are compulsory employment agreements, employee entitlements such as holidays, sick leave & maternity leave, minimum wages, kiwisaver obligations, and deducting and accounting for PAYE.
Record Keeping – The basic level needed to meet your legal responsibilities or more detailed to create meaningful reports to assist in managing your business. Your accountant will be able to advise you on how to keep your records to minimise year-end fees, various software systems available and how to interpret the figures.
Other Requirements – There are rigorous health & safety requirements for all businesses, with exposure to liability for business owners & managers. Does your business require any particular licences or permits to operate – e.g. Council licences?
As you can see, there are a number of considerations involved in setting up a new business, so get advice to get it right from the start. As part of our community commitment, PKF Francis Aickin offers a free initial consultation.
For more information on how we can help your business, get in touch